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Cannabis Banking in 2022: Four Trends to Watch

The new year is right around the corner, making it an ideal time to reflect on the past year and anticipate what changes may be ahead for financial institutions contemplating or already serving cannabis-related businesses (CRBs).

While much of what we anticipated last year still holds, there are a few new issues banks and credit unions should be prepared to address in the coming months. Here are a few trends we are tracking for our customers.


It is almost certain that rates will have to rise to address inflation. Earlier this month, the Federal Reserve projected three interest rate hikes in 2022, implying their mindset is also shifting in that direction. What's less clear is when these rate increases may occur.

These economic shifts mean a few things for financial institutions. As consumers retain the vestiges of some pandemic savings – from COVID relief payments and skipping expenses like vacations or dining out – and CRBs continue to experience significant revenue growth, the banks and credit unions that serve them are still experiencing excess liquidity. As rates begin to rise, low-cost business checking deposits will become increasingly valuable to financial institutions. Regardless of timing, developing business lines that generate low-cost funding sources is critical for long-term profitability.

As long as demand for cannabis financial services remains high relative to supply, banks and credit unions will have good pricing power allowing them to generate non-interest income that helps offset the costs of their cannabis programs and contributes to the bottom line.

New Revenue Streams

While cannabis has mainly been a cash-only industry due to regulatory constraints, the reliance on cash has created an array of security risks and compliance challenges. A significant change over the past year is the introduction of electronic payments.

Fortunately, new digital payment options are emerging that offer a higher degree of safety and convenience for consumers and CRBs, and an opportunity for financial institutions to generate new non-interest income revenue streams. Last year, Shield Compliance announced new partnerships with POSaBIT and Spence Labs, creating compliant payment networks and providing increased transparency and enhanced monitoring of transactions to financial institutions. Financial institutions should choose their partners carefully, as the major card brands are actively guarding against cannabis transactions on their networks, especially misrepresented transactions.

We are also seeing a growing number of financial institutions entering the space for the first time include lending as part of their initial business plans. While access to credit is improving for the industry and there is more competition than there was even a year ago, there is still a yield premium to be had.

Diversity, Equity, and Inclusion (DEI)

As momentum for legal cannabis markets grows, communities disadvantaged by past marijuana policies are gaining new ownership and investment opportunities. This trend has been underway for a few years and is strengthening as states introduce new licensing programs or expand their licensing base.

Applicants who win these licenses will likely have different business needs than a multi-state operator with access to capital and a more complex management structure. Serving these customers is an opportunity for financial institutions to meet their compliance obligations while also ensuring that the cannabis business is set up for success.

These license holders may also not be familiar with your bank or credit union or have experience obtaining commercial banking services. Fortunately, building relationships with customers in the community is what many community banks and credit unions already do well and utilizes a muscle they already have.

Federal Gridlock

With midterms on the horizon, it's unlikely we'll see any significant compromise or bipartisan efforts on the federal level in 2022. This means financial institutions will continue to operate in a gray area for the foreseeable future.

The benefits can be significant for financial institutions prepared to explore that gray space. As evidenced by record sales volumes across the country, the cannabis industry has been somewhat pandemic proof. More states are recognizing the revenue opportunity in legal adult-use cannabis and are acting accordingly. The past year has seen adult-use cannabis legalized in New York, New Jersey, Connecticut, Arizona, and Montana. With plenty of examples of successful retail programs to draw from, states are hitting the ground running. For example, Arizona, which launched adult-use sales in January, is now on track to outpace sales in Colorado.

The good news for financial institutions is that the compliance systems they're investing in, the relationships they're developing, and the customers they're acquiring today will retain their value after the passage of the SAFE Banking Act or federal legalization. The financial institutions that establish a strong foothold in the market now will also have a valuable first-mover advantage when federal policy changes and the floodgates open.

This article originally appeared in CU Insight on December 28, 2021


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